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Bank of Canada cuts growth forecast, holds rates

By Kevin Carmichael

Published Wednesday, Apr. 17 2013, The Globe and Mail


The Bank of Canada cut its outlook for economic growth, suggesting borrowing costs will remain at historically low levels for at least another year, and quite likely even longer.

Canada’s gross domestic product will expand 1.5 per cent in 2013, and 2.8 per cent in 2014, compared with January estimates of 2 per cent and 2.7 per cent respectively, the central bank said.

Weaker growth implies it will take longer for Canada’s economy to rev to a pace of growth that would stoke inflation, a key metric behind the central bank’s policy decision. The Bank of Canada aims to keep prices advancing at an annual rate of about 2 per cent, and said Wednesday that inflation wouldn’t approach that target until the middle of 2015.

Bank of Canada Governor Mark Carney opted to confront this altered future by doubling down on current policy. The central bank left its benchmark interest rate unchanged at 1 per cent, and restated its pledge to leave that “considerable” amount of monetary stimulus in place for a “period of time.”

The Bank of Canada also reiterated that the next interest-rate move, whenever it comes, likely would be an increase, language that reflects policy makers’ concern that ultra-low borrowing costs could inflate a housing bubble if left entirely unchecked.


Source: The Globe and Mail

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